Contractors 'disappointed' at government’s 'swift' reply to Lords' IR35 inquiry

A Lords inquiry scathing about the Treasury’s and taxman’s handling of IR35, IR35 reform in the public sector and IR35 reform in the private sector, seems to have left the government largely unmoved.

Speaking after the inquiry’s publication, a minister said the off-payroll reforms would take effect on April 6th 2021, effecting rejecting the Lords’ call for an overhaul or a pause to fix 29 unresolved difficulties.

Jesse Norman, the financial secretary to the Treasury, also said that the government’s IR35 thinking “has not changed”, and reiterated that PSCs “working like employees” should be taxed “broadly” as their client’s staff.

'Contractors bear all the risk'

The minister’s comments come despite the Lords criticising IR35 on the basis that it “fails to acknowledge that contractors bear all the risk for providing the workforce flexibility from which both parties [contractor and end-user] benefit.”

Speaking after Monday’s publication of the Lords inquiry, Off-Payroll Working: Treating People Fairly, the Conservatives’ David Davis said the government “must pay attention” to its findings.

The Tory MP will likely be disappointed, then, that only one of the peers’ many recommendations has been accepted – that the government will commission research into the April 2017 framework.

'Research will be available pre-April 2021 launch'

Mr Norman said: “The government will use this additional time [the delay to 2021 announced in wake of COVID-19], to commission further external research into the long-term effects of the reforms in the public sector”.

But even this acceptance of the Lords’ recommendation (there is no other reason for the Treasury to agree to such research even though none was given by the minister), was tied to the government forging ahead.

“The intention [is] that this research will be available before the reforms come into effect in the private sector in April 2021,” added Mr Norman, who also said the government remains “fully committed” to the framework – not, it seems, the alternatives which the Lords want explored.

'Swift'

“The response from the government [has been] swift with Jesse Norman stating that the legislation will still go ahead in April 2021,” reflected Matt Fryer of Brookson Legal.

“[Clients and contractors should] use the time wisely and keep the momentum going in your organisations -- it is possible to get this [reform] right but you need to start taking action now.”  

Although the minister’s comments, made in relation to the Finance Bill, are being seen as a tacit reply to the Lords, a status adviser said a formal, proportionate response is outstanding.

“I have also seen the response [on Hansard] but there’s been no official statement yet in response to what is a very conclusive report,” says the adviser, Rebecca Seeley Harris.

“But potentially disappointing to contractors, I don’t think there will be one. I think it will just be dealt with through the Finance Bill. 

'Nothing new'

The founder of ReLegal Consulting also said: “The problem with the Lords’ report is there is nothing new. It is a re-statement of everything that has gone before.

“The government are well-aware of the failings and all the numerous reports but, they are determined that this is the right course of action.”  

More positively for the Lords, WTT Consulting says the weight of their criticism is significant enough that such a course of action could be modified, if not rerouted entirely.

'Possibly in a different form'

The HMRC dispute firm’s Tom Wallace said: “The highly-critical report of the Economic Affairs Committee strikes at the very root of the proposed reforms.

“So, if and when the off-payroll reforms are introduced, by implication, it is possible they will not be implemented in their present form.”

But the Association of Independent Professionals and the Self-Employed wants them not implemented at all.

“It is clearly time for the government to rethink its entire approach to IR35,” said IPSE’s Andy Chamberlain.

“The contractor sector is already under immense strain because of the coronavirus crisis and the pointed lack of government support for the majority of contractors who work through limited companies.

“The last thing this embattled sector needs now is the ill-conceived and destabilising changes to IR35. We urge the government to follow the advice of the committee…and instead of IR35, conduct a full taxation review to create a fair balance between tax, rights and risk.”

'Greater weight'

Pending HMRC’s reply to the inquiry,  Brookson’s Mr Fryer said: “It will be interesting to see whether the [Lords Economic Affairs Finance Bill] Sub-Committee’s warnings will carry greater weight than the feedback and lobbying undertaken by those with an interest in the contracting sector over the last few years.”

However, in his comments to MPs, Mr Norman said that the government would shortly introduce an amendment to the bill to legislate for the April 2021 framework, dashing hopes that its omission was significant.